Monday, January 2, 2012

Rial in Freefall - UPDATES

Iran’s currency rial continues its rapid decline, hitting a new record low to the US dollar today. IRNA, the country’s official news agency, reported that the market exchange rate was at 16,400 rials to the dollar in mid-day trading [IRNA, 2 January]. The state broadcasting system later reported that rial was trading at 16,800 [IRIB, 2 January].

The new rate represents a 7% decline in value since Saturday, when President Obama signed the legislation imposing sanctions on financial institutions dealing with the Central Bank of Iran (CBI). The sanctions are to go into effect within the next six months.

The rial has lost nearly 55% of its value against the US dollar since January 2011, when it was traded at 10,850 to the dollar.

UPDATE: The semiofficialFars News Agency reported that rial has hit an all-time low of 17,000 per dollar on Monday, or nearly 60% of its value in one year [Fars News Agency, 2 January].

UPDATE: Reports from Iran indicate that the rial has hit a low of 17,800.

UPDATE (Tuesday 3 January): Rial regained some of the lost value today and was trading at 16,000 per dollar. On Monday, rial started trading at the beginning of the day at an all-time low of 16,400, and quickly lost further value ending the day at 17,800.

38 comments:

Anonymous
said...

"Ordinary Iranians are urgently seeking out foreign currency such as dollars or euros for safety, yet they are having trouble accessing hard currency, and when they can, they have to pay the unofficial market rate," said Cohen, the Treasury undersecretary for terrorism and financial intelligence.

'Profitable Arbitrage'

"At the same time, senior government officials and preferred businesses, including IRGC-owned and controlled operations, are able to access foreign exchange at the official rate, essentially engaging in profitable arbitrage on the back of the average Iranian," according to Cohen.

these gentlemen dont understand the (free) economy; no one of them had ever a real job in the free market or generated some real value for the country; the consumption of oil was all that they have cared about; these gentlemen now are bankrupting the nation for the continuation of their childish dream to be the leader of some imaginary islamic world ...

You don't understand the structure of international currency flows. This is not "losing value." It is black market Iranian money couriers charing excessive fees, i.e. price gouging, to take advantage of a public panic.

Anyone moving money out via the CBI can still receive the 1,100 tomans / dollar rate.

These excessive money courier fees will not last once additional couriers enter the market to take advantage of the high prices.

I know of an Iranian who moved a few months from the US to Eastern Europe. I never understood why, or how he was supporting himself in an economy that had to be worse than the US's economy.

Now I seriously suspect that he and his family are running a money courier service, where they charge ordinary Iranians 1,700 tomans for a dollar that cost them only 1,100 tomans - because he uses the official exchange rate to move money from Iran into his Eastern European bank account.

SPOT ON !The Islamic fascist regime is enriching themselves in return the Iranian people are asked to suffer for the regimes twisted dream of being some Muslim power.Iran for Iranians not Palestinians or foreign Muslim crackpots and lunatics.

All the other planets support the Iranian regime and this is a great opportunity to export Iranian oil to Uranus.Uranus will strongly support the Iranian theocracy against all these nations treating Iran unjustly and earthlings will be sorry

There are plenty of traitors who only care for themselves and not their country.One of them is this person you described a person who cooperates with the traitor Islamic regime to enrich himself.These people are first rate scum and the Islamic regime consists of scum basically scum work for and serve scum.

Do you really think a government that suffered chemical weapons attacks on hundreds of thousands of soldiers and massive loss of life and property in a war against essentially the rest of the world (all of whom supported iraq) would fall due to a declining currency?

In 1979 7 tomans = $1 dollar. In 2005 800 tomans = $1 dollar. Nobody cares. They are just pieces of paper at the end of the day.

bring it to a stage where scrapping zeros would simplify the transition and ..." Scrapping Zeroes? Are you insane? You are talking about mass Deflation. Any economist would shutter to think of such a thing. That is what helped plunge the US in to the Great Depression.

"Against Gold, the dollar has lost 83% of its value over the disastrous decade of the 2000s. So there goes that theory!"

Except Gold is nearly useless, unless you are building computers. 2/3rd of Gold usage is in Jewelry.

The Dollar and Euro are based on the value of the economy of the country (or alliance) that prints them IE they are Fiat Money.

Gold only has value if someone is willing to trade items or other currency for it. While a USD has the backing of the US Treasury.

See people are buying gold because they see that it has a superior value to currencies while in fact its real fixed value is much less. If a country's economy is not doing well than the uses of gold are less (less manufacturing that requires gold), thus the current value of gold is based on the investor's expectation of its value and not its real world value. The current value of gold is artificially inflated.

>Think of it this way if you own several pounds of gold but there is no industry to make items with it you own several pounds of a worthless (yet pretty) element and you might as well just own some pyrite.

Look buddy that was thirty years ago and the so called revolution was new and unknown then and some Iranians believed in it but alas no longer the people have sussed out the regime for what it is a corrupt lying thieving murderous undemocratic theocracy and are not willing to shed a drop of their blood for such a pariah regime.

Anon 4:02 pm....If money is not that important lets see how long your Islamic regime will last for.The mullahs are well known for worshiping money even surpassing the Jews that you hate so much.Shows how educated you are by the way you show your ignorance and hatred typical IRI supporter.

TLAM_Strike brings up an interesting point - "If the US Dollar lost 55% of its value ... the President would be impeached and ... congress would be out of a job next election."

This begs the question how the devaluation in currency will effect the 2012 Majlis election. According to the few pieces of commentary I've read on it so far, it looks like the economy will play a central role but I can't say whether or not it directly linked to the state of the currency.

Also, since the election will basically be hardliners vs hardliners, I can't say who the public will specifically blame. Ahmadinejad et al provide a very tempting image though that people might identify with the current crisis.

For one, I was speaking generally about the state of the economy vis-a-vis the state of the currency rather then this specific round of sanctions.

Regardless, I wouldn't underestimate the capacity of people to blame incumbents regardless of the "true" cause of the crisis; economic hardship is economic hardship.

That being said, it's also possible (though not forgone) that the electorate will link the policies of certain leaders in Tehran to the imposition of sanctions and the overall impact on the economy, and decide that "steadfast resistance" is not worth the increase in the price of tomatoes.

This currency adjustment, right or wrong, is simply keeping up with inflation. The financial problems of Iran run deeper than currency policy. The free market is an impartial judge of government failure, and the low rial is the market's verdict that the regime is collapsing financially.

the best scenario would be a pro-amercian coup and we can get rid of Khamenei (and his inner circle); he formed a black hole in the center of iranian policy and no improvement is possible as long as he occupies the place of power in iran; khamenei is clearly ready to destroy Iran in order to remain in Power; he should be forced out - like mubarak.

Even Iran's top trading partner China - which has refused to back new global sanctions against Iran - is demanding discounts to buy Iranian oil as Tehran's options narrow. Beijing has cut its imports of Iranian crude by more than half for January and, paying premiums for crude from Russia and Vietnam to replace it.

Although China, India and other countries are unlikely to sign up to any oil embargo, they will be able to insist on deeper discounts, potentially reducing the income Tehran receives from oil.

Beijing has been driving a hard bargain. China, which bought 11 percent of its oil from Iran during the first 11 months of last year, has cut its January purchase by about 285,000 barrels per day, more than half of the close to 550,000 bpd that it bought through a 2011 contract.

The impact of falling government income from oil sales can be felt on the streets in Iran in soaring prices for state subsidized goods and a falling rial currency.

Some exchange offices in Tehran, when contacted by Reuters, said there was no trading taking place until further notice.

"The rate is changing every second ... We are not taking in any rials to change to dollars or any other foreign currency," said Hamid Bakshi in central Tehran.

Housewife Zohreh Ghobadi, waiting in a long line at a bank, said she was trying to withdraw her savings and change it into dollars.

China is a great friend of Iran and would not strong arm Iran on oil prices. I think that China is giving Iran all the best weapons to attack America, soon (within a few years) our missiles and their warheads will be able to hit the heart of the american mainland!!!

Anon 8:56 AMYou can believe what you like the facts are that China doesn't what to deal with a blacklisted regime and contrary in what you said China won't be selling advanced weapons to Iran.China is looking out for itself and Iran is no friend.

Why would China give Iran advanced weapons and technology so that one day Iran can attack America when America helps China in its development and Chinese imports into the US and the West?Mr Genius China needs America more than they need Iran because America has the technology and skill as a major world power to offer China what they want for years to come.Iran as it is today under a twisted and mad hatter regime has nothing special to offer except oil and under your very eyes that is being replaced by other importers to China.

China is doing everything it can, short of directly giving Iran's mullahs nuclear weapons, China directly supports the regime in Iran, its sells Iran many products designed to help "control" (keep the people from gaining freedom & democracy). Iran's leaders have sold thier souls (if they ever had any to begin with) in dealing with the "godless" regime in China.

Here is an just one small example of China's helping Iran in trying to get Iran to produce/launch nuclear weapons:

People in Iran, Turkiye, India, China save in gold, property, land. How stupid you have to be to keep stash of useless toilet paper called US bank notes and earn 1-2% interest a year. People in Turkiye keep several thousand tons of gold in their bank safes or homes. The same is most likely for Iran i guess, hence the real reason tor fluctuation of value of useless paper notes in any currency. If I was living in Iran the safest investment options I can think of is gold, productive land of high yield government bonds issued for energy projects. Iran has, like Turkiye, achieved tremendous economical advance in last 10 years and almost every industry is growing 10% or more. Including cement, steel, light metals, cars, gas production, electricity, water, food, etc.

Thanks friend I guess should've mentioned that as China helped the regime in Iran.Your absolutely right that China did sell Iran some special riot vehicles and equipment during the uprising in 2009.The Chinese regime is the enemy of the Iranian nation.Keep on posting finding your work interesting and knowledgeable.Regards.

Here is another Chinese company helping the Iranian regime spy on and control its population.

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In a letter to the U.S. Department of State, six U.S. lawmakers have called for a government investigation into whether Huawei and other telecommunications companies violated an Iran sanctions law passed by the U.S. Congress in 2010 by supplying sensitive technology to Iran.

The letter, which largely cited a Wall Street Journal report in October that the Iranian government used technology from Huawei and other companies to "restrict the speech of the Iranian people and the free flow of unbiased information in Iran," was dated December 22, but was only made public this week.

Huawei, China's biggest telecom equipment manufacturer, said on December 10 that it would not pursue new business in Iran after a U.S.-based watchdog said that the authorities in Tehran were using the company's equipment to monitor dissidents.

Thanks again.Interesting question regarding the control ratio in Iran.What we have to look at first is the size of the religious class and their families.Then the non religious establishment in the governmental organizations and military namely the IRGC Basij and their hangers on.Regards.

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